NABO Economic·Industrial Trends & Issues (No. 5)
Published on May 22, 2020
Published by Macro-Economic Analysis Division, Economic Analysis Department
I. Economic·Industrial Trends
The economic slowdown in the Korean economy is intensifying as the recent COVID-19 outbreak and its shock waves are reflected and felt more strongly in employment and exports. During April, the labor market deteriorated due to the impact of COVID-19, with the total number of the employed dropping by 476,000 YoY monthly and the employment rate falling by 1.4%p YoY. Exports recorded a 24.3% drop YoY, monthly, as demand for overseas imports plunged due to the global spread of COVID-19. Consumer prices rose by 0.1% YoY, monthly, which is lower than the previous month (1.0%), as downward inflation pressures, such as plummeting international oil prices, have increased. In the financial markets, the won-dollar exchange rate rose as the US dollar continued to strengthen, but the market interest rate fell and stock indices rose due to stabilization in short-term financial markets. In the meantime, energy and commodity price indices fell.
Ⅱ. Pending Economic·Industrial Issues
■ Policy response status of major countries following the spread of COVID-19
The world-wide spread of COVID-19 has emerged as a major risk factor for the global economy, and several countries are seeking policy measures to counter its downward risks to their economies with many trying to reduce its economic impact by adopting aggressive fiscal spending and proactive monetary easing policies.
■ COVID-19 trends and the economic impact in the U.S.
The spread of COVID-19 has led the U.S. to implement social distancing measures, while its real economy recorded negative growth and the unemployment rate rose in the first quarter. If the period of escalation in new confirmed cases is prolonged resulting in the delay in the resumption of economic activities, it will likely adversely affect the U.S. economy, and is expected to add further risk to the Korean economy.
■ Status of policy financing support in response to COVID-19
As of the end of April, the review of the execution performance of the government's 56.4 trillion won policy financing program implemented starting April 1 to help address financial difficulties and stabilize the financial market rattled by COVID-19 indicates that it fell short of resolving the financial issues faced by small and micro business owners, mostly because of the sheer number of applications filed for the program that was designed to help those with low credit scores. In the future, it may be necessary to check the demand for each potential program by referring to the runout rate of individual financing programs that are currently on offer.
■ Export trends after the COVID-19 outbreak
COVID-19 is causing dwindling global industrial production and sluggish exports led by a global economic downturn. In April, as the export of semiconductors, which had been driving the increase in export volume, declined, it resulted in a dramatic drop in total export volume.
■ Employment trends and implications in Korea following the spread of COVID-19
With the spread of COVID-19, employment indicators such as the number of employed and the employment rate began to deteriorate in March, and seemed to worsen in April. In particular, considering that the employment situation is more likely to have gotten worse than what employment indicators reveal at face value with the extended unemployment rate and those who are temporarily laid off, etc. increasing, it is necessary to quickly identify those who are vulnerable to employment shock and actively seek customized responses.
Ⅲ. Economic · Industrial Issues
■ Impact of the decrease in the number of foreigners visiting Korea after COVID-19 on domestic service production and employment
The sharp decline in foreigners visiting Korea due to COVID-19 has raised concerns that it will have a negative impact on the domestic economy, mainly in the production and employment of related service industries. It is expected that the impact of a decrease in domestic consumption by foreigners on related industries will be significant, given that domestic consumption by Koreans has already fallen significantly. Although domestic consumption by foreigners accounts for a small portion of total domestic consumption, it seems more volatile than domestic consumption by Korean nationals, thus it has a greater impact on domestic consumption fluctuations. If the rate of increase in the number of foreigners visiting Korea goes up by 1%p, domestic consumption by foreigners is estimated to increase by 0.9%p. The decrease in foreigners' domestic consumption due to the decline in the number of foreigners visiting Korea is expected to negatively affect real value-added production and employment in the domestic service industry in 2020. If the rate of increase in domestic consumption by foreigners rises by 1%p, the production of the entire service industry is estimated to increase by 0.01%p based on the real value added, and the increase in the number of those employed in the service industry is estimated to go up by 0.01%p. According to the scenario-specific analysis of the impact of the decrease in foreigners visiting Korea, the real value-added production of the domestic service industry in 2020 is estimated to decrease by 0.2~0.3% (2.4~3.3 trillion won) and the employment rate to fall by 0.4~0.5% (70,000~97,000) YoY.